Mabuhay V Sembcorp

12/5/2020 SUPREME COURT REPORTS ANNOTATED VOLUME 888

December 5, 2018.*
G.R. No. 212734.

MABUHAY HOLDINGS CORPORATION,
petitioner, vs. SEMBCORP LOGISTICS, LIMITED,
respondent.
Alternative Dispute Resolution; Arbitration; Foreign Arbitral

Award; In addition to our arbitration laws, our courts, in
recognizing or enforcing a foreign arbitral award, shall also take
into consideration the laws applied by the arbitral tribunal.—In
addition to our arbitration laws, our courts, in recognizing or
enforcing a foreign arbitral award, shall also take into
consideration the laws applied by the arbitral tribunal. These
may comprise the substantive law of the contract and the
procedural rules or the rules governing the conduct of arbitration
proceedings. As agreed upon by the parties herein under the
arbitral clause in their Agreement, the substantive law of the
contract is the Philippine law and the procedural rules are the
ICC Rules. During the filing of the request for Arbitration, the
ICC Rules in effect was the ICC Rules of Arbitration 1998,
Considering that the essence of arbitration is party autonomy, the
Court shall refer to the said Rules for purposes of examining the
procedural infirmities raised by the parties to the arbitration.
Same; Special Alternative Dispute Resolution Rules; The
Special Alternative Dispute Resolution (ADR) Rules shall
retroactively apply to all pending cases provided that no vested
rights are impaired or prejudiced.—The Special ADR Rules took
effect in 2009. Sembcorp’s notice of appeal was filed only in 2008.
The ADR Act, which was already in effect at that time, did not
specify the proper remedy of appeal from the RTC to the CA. It
merely provides that “a decision of the regional trial court
confirming, vacating, setting aside, modifying or correcting an
arbitral award may be appealed to the CA in accordance with the
rules of procedure to be promulgated by the Supreme Court.” The
Special ADR Rules shall retroactively apply to all pending cases
provided that no vested rights are impaired or prejudiced. In this
case, Sembcorp filed a notice of appeal in accordance with Section
2 of Rule 41 as it is the only applicable
_______________
* FIRST DIVISION.
central.com.ph/sfsreader/session/000001763249c1d46aefab2c003600fb002c009e/t/?o=False 1/37

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Mabuhay Holdings Corporation vs. Sembcorp Logistics,
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rule existing at that time. Sembcorp had a vested right to due

process in relying on the said rule. Consequently, the CA had
jurisdiction to act on Sembcorp’s appeal.
Same; Same; Arbitrators; Rule 2.3 of the Special Alternative
Dispute Resolution (ADR) Rules provides that “the parties are free
to agree on the procedure to be followed in the conduct of arbitral
proceedings.” The procedure to be followed on the appointment of
arbitrator are among the procedural rules that may be agreed
upon by the parties.—It bears stressing that the pro-arbitration
policy of the State includes its policy to respect party autonomy.
Thus, Rule 2.3 of the Special ADR Rules provides that “the
parties are free to agree on the procedure to be followed in the
conduct of arbitral proceedings.” The procedure to be followed on
the appointment of arbitrator are among the procedural rules that
may be agreed upon by the parties. Moreover, under Rule 7.2 of
the Special ADR Rules, a challenge to the appointment of an
arbitrator may be raised in court only when the appointing
authority fails or refuses to act on the challenge within such
period as may be allowed under the applicable rule or in the
absence thereof, within thirty (30) days from receipt of the
request, that the aggrieved party may renew the challenge in
court. This is clearly not the case for Mabuhay as it was able to
challenge the appointment of Dr. Chantara-Opakorn in
accordance with Article 11 of the ICC Rules, but the ICC Court
rejected the same. As such, the Court shall not entertain any
challenge to the appointment of arbitrator disguised as a ground
for refusing enforcement of an award. At any rate, Mabuhay’s
contention that the sole arbitrator must have the expertise on
Philippine law fails to persuade. If the intent of the parties is to
exclude foreign arbitrators due to the substantive law of the
contract, they could have specified the same considering that the
ICC Rules provide for appointment of a sole arbitrator whose
nationality is other than those of the parties.
Same; Same; The Special Alternative Dispute Resolution
(ADR) Rules specifically provides that in resolving the petition for
recognition and enforcement of a foreign arbitral award, the court
shall not disturb the arbitral tribunal’s determination of facts
and/or interpretation of law.—The Special ADR Rules specifically
provides that in resolving the petition for recognition and
enforcement of a foreign arbitral award, the court shall not
disturb the arbitral tribunal’s

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determination of facts and/or interpretation of law. Yet, the

RTC, in its decision dismissing the petition of Sembcorp, declared
that “it is undisputed that the shares of stocks of IDHI in WJNA
and WJSC were actually owned by [Sembcorp] before the filing of
the request for arbitration” without providing any factual basis
for such conclusion which directly contradicts the arbitral
tribunal’s findings. Even granting that the court may rule on the
issue of whether the dispute is an intra-corporate controversy,
Mabuhay’s argument is premised on the factual issue of whether
Sembcorp indeed acquired the shares of IDHI. Mabuhay failed to
establish such fact before the arbitral tribunal. The RTC, on the
other hand, concluded that Sembcorp acquired the subject shares
but failed to explain the basis for such conclusion. In the absence
of sufficient evidence that Sembcorp acquired the shares of IDHI,
the Court finds no cogent reason to disturb the arbitral tribunal’s
ruling in favor of the latter’s jurisdiction over the dispute.
Same; Arbitration; International Arbitration; Due to divergent
approaches in defining public policy in the realm of international
arbitration, public policy has become one of the most controversial
bases for refusing enforcement of foreign arbitral awards.—Under
Article V(2)(b) of the New York Convention, a court may refuse to
enforce an award if doing so would be contrary to the public policy
of the State in which enforcement is sought. Neither the New
York Convention nor the mirroring provisions on public policy in
the Model Law and Our arbitration laws provide a definition of
“public policy” or a standard for determining what is contrary to
public policy. Due to divergent approaches in defining public
policy in the realm of international arbitration, public policy has
become one of the most controversial bases for refusing
enforcement of foreign arbitral awards.
Public Policy; In Our jurisdiction, the Supreme Court (SC)
has yet to define public policy and what is deemed contrary to
public policy in an arbitration case.—Most arbitral jurisdictions
adopt a narrow and restrictive approach in defining public policy
pursuant to the pro-enforcement policy of the New York
Convention. The public policy exception, thus, is “a safety valve to
be used in those exceptional circumstances when it would be
impossible for a legal system to recognize an award and enforce it
without abandoning the very

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fundaments on which it is based.” An example of a narrow

approach adopted by several jurisdictions is that the public policy
defense may only be invoked “where enforcement [of the award]
would violate the forum state’s most basic notions of morality and
justice.” Thus, in Hong Kong, an award obtained by fraud was
denied enforcement by the court on the ground that fraud is
contrary to Hong Kong’s “fundamental notions of morality and
justice.” In Singapore, also a Model Law country, the public policy
ground is entertained by courts only in instances where upholding
the award is “clearly injurious to the public good or. . . wholly
offensive to the ordinary reasonable and fully informed member of
the public.” In Our jurisdiction, the Court has yet to define public
policy and what is deemed contrary to public policy in an
arbitration case.
Joint Ventures; By choosing to adopt a corporate entity as the
medium to pursue the joint venture enterprise, the parties to the
joint venture are bound by corporate law principles under which
the entity must operate.—The restrictive approach to public policy
necessarily implies that not all violations of the law may be
deemed contrary to public policy. It is not uncommon for the
courts in Contracting States of the New York Convention to
enforce awards which does not conform to their domestic laws. At
any rate, Mabuhay’s contention is bereft of merit. The joint
venture between Mabuhay, IDHI, and Sembcorp was pursued
under the Joint Venture Corporations, WJSC and WJNA. By
choosing to adopt a corporate entity as the medium to pursue the
joint venture enterprise, the parties to the joint venture are bound
by corporate law principles under which the entity must operate.
Among these principles is the limited liability doctrine. The use of
a joint venture corporation allows the co-venturers to take full
advantage of the limited liability feature of the corporate vehicle
which is not present in a formal partnership arrangement. In fine,
Mabuhay’s application of Article 1799 is erroneous.
Alternative Dispute Resolution; Arbitration; Foreign Arbitral
Award; Mere incompatibility of a foreign arbitral award with
domestic mandatory rules on interest rates does not amount to a
breach of public policy.—Mere incompatibility of a foreign arbitral
award with domestic mandatory rules on interest rates does not
amount to a breach of public policy. However, some jurisdictions
refused to recognize and enforce awards, or the part of the award
which was con-

368

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sidered to be contrary to public policy, where they considered

that the awarded interest was unreasonably high. In this case,
the twelve percent (12%) interest rate imposed under the Final
Award is not unreasonably high or unconscionable such that it
violates our fundamental notions of justice.
Same; Same; Arbitration, as a mode of alternative dispute
resolution, is undeniably one of the viable solutions to the
longstanding problem of clogged court dockets.—We implore the
lower courts to apply the ADR Act and the Special ADR Rules
accordingly. Arbitration, as a mode of alternative dispute
resolution, is undeniably one of the viable solutions to the
longstanding problem of clogged court dockets. International
arbitration, as the preferred mode of dispute resolution for foreign
companies, would also attract foreign investors to do business in
the country that would ultimately boost Our economy. In this
light, We uphold the policies of the State favoring arbitration and
enforcement of arbitral awards, and have due regard to the said
policies in the interpretation of Our arbitration laws.
PETITION for review on certiorari of the decision and

resolution of the Court of Appeals.
The facts are stated in the opinion of the Court.
Castillo, Laman, Tan, Pantaleon & San Jose for
petitioner.
Sycip, Salazar, Hernandez & Gatmaitan for
respondent.

TIJAM, J.:

This is an appeal from the Decision1 dated November 19,
2013 and the Resolution2 dated June 3, 2014 of the Court of
Appeals (CA) in C.A.-G.R. CV No. 92296, reversing and set-
_______________
1 Penned by Associate Justice Zenaida T. Galapate-Laguilles, with

Associate Justices Mariflor P. Punzalan Castillo and Amy C. Lazaro-
Javier, concurring. Rollo, pp. 68-84.
2 Id., at pp. 65-66.

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ting aside the Decision of the Regional Trial Court

(RTC)3 of Makati City, Branch 149, in SP Proc. No. M-
6064.

Facts of the Case

Petitioner Mabuhay Holdings Corporation (Mabuhay)
and Infrastructure Development & Holdings, Inc. (IDHI)
are corporations duly organized and existing under the
Philippine Laws.4
Respondent Sembcorp Logistics, Limited (Sembcorp),
formerly known as Sembawang Maritime, Limited, is a
company incorporated in the Republic of Singapore.5
On January 23, 1996, Mabuhay and IDHI incorporated
Water Jet Shipping Corporation (WJSC) in the Philippines
to engage in the venture of carrying passengers on a
common carriage by interisland fast ferry. On February 5,
1996, they also incorporated Water Jet Netherlands
Antilles, N.Y. (WJNA) in Curasao, Netherlands.6 Their
respective shareholding percentage are as follows:7

On September 16, 1996, Mabuhay, IDHI, and Sembcorp
entered into a Shareholders’ Agreement8 (Agreement)
setting out the terms and conditions governing their
relationship in connection with a planned business
expansion of WJSC and WJNA. Sembcorp decided to invest
in the said corporations.
_______________
3 Penned by Presiding Judge Cesar O. Untalan. Id., at pp. 85-92.

4 Id., at p. 19.
5 Id.
6 Id., at pp. 19-20.
7 Id., at p. 213.
8 Id., at pp. 93-112.

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As a result of Sembcorp’s acquisition of shares, Mabuhay

and IDHI’s shareholding percentage in the said
corporations were reduced, as follows:9

Pursuant to Article 13 of the Agreement, Mabuhay and
IDHI voluntarily agreed to jointly guarantee that
Sembcorp would receive a minimum accounting return of
US$929,875.50 (Guaranteed Return) at the end of the
24th month following the full disbursement of the
Sembcorp’s equity investment in WJNA and WJSC. They
further agreed that the Guaranteed Return shall be paid
three (3) months from the completion of the special audits
of WJSC and WJNA as per Article 13.3 of the Agreement.10
The Agreement included an arbitration clause, viz.:

Article XIX. APPLICABLE LAW; ARBITRATION

19.1. This Agreement and the validity and performance
thereof shall be governed by the laws of the Republic of the
Philippines.
19.2. Any dispute, controversy or claim arising out of or
relating to this Agreement, or a breach thereof, other than
intra-corporate controversies, shall be finally settled by
arbitration in accordance with the rules of conciliation and
arbitration of the International Chamber of Commerce by
one arbitrator with expertise in the matter at issue
appointed in accordance with said rules. The arbitration
proceeding including the rendering of the award shall take
place in Singapore and shall be conducted in the
_______________
9 Id., at pp. 20-21, 69.

10 Id., at p. 69.

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English Language. This arbitration shall survive

termination of this Agreement. Judgment upon the award
rendered may be entered in any court having jurisdiction or
application may be made to such court for a judicial
acceptance of the award and an order of enforcement, as the
case may be.11

On December 6, 1996, Sembcorp effected full payment of
its equity investment. Special audits of WJNA and WJSC
were then carried out and completed on January 8, 1999.
Said audits revealed that WJSC and WJNA both incurred
losses.12
On November 26, 1999, Sembcorp requested for the
payment of its Guaranteed Return from Mabuhay and
IDHI. Mabuhay admitted its liability but asserted that
since the obligation is joint, it is only liable for fifty percent
(50%) of the claim or US$464,937.75.13
On February 24, 2000, Sembcorp sent a Final Demand
to Mabuhay to pay the Guaranteed Return. Mabuhay
requested for three (3) months to raise the necessary funds
but still failed to pay any amount after the lapse of the said
period.14
On December 4, 2000, Sembcorp filed a Request for
Arbitration before the International Court of Arbitration of
the International Chamber of Commerce (ICC) in
accordance with the Agreement and sought the following
reliefs:

(1) payment of the sum of US$929,875.50;
(2) alternatively, damages;
(3) interest on the above sum at such rate as the Arbitral
Tribunal deems fit and just;
(4) cost of the arbitration; and
_______________
11 Id., at p. 108.
12 Id., at pp. 69-70.
13 Id., at p. 70.
14 Id.

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(5) Such further and/or other relief as the Arbitral

Tribunal deems fit and just.15

On April 20, 2004, a Final Award16 was rendered by Dr.
Anan Chantara-Opakorn (Dr. Chantara-Opakorn), the Sole
Arbitrator appointed by the ICC. The dispositive portion of
the award reads:
The Sole Arbitrator hereby decides that the Sole Arbitrator has
jurisdiction over the parties’ dispute and directs [Mabuhay] to
make the following payments to [Sembcorp]:
1. Half of the Guaranteed Return or an amount of
US$464,937.75 (Four Hundred Sixty-Four Thousand Nine
Hundred Thirty-Seven and Point Seventy-Five US Dollars);
2. Interest at the rate of 12% per annum on the said
amount of US$464,937.75 calculated from the date of this
Final Award until the said amount of US$464,937.75 is
actually and completely paid by [Mabuhay] to [Sembcorp];
and
3. A reimbursement of half of the costs of arbitration
fixed by the ICC Court at US$57,000 or the aggregate half
of which amount to US$28,500 together with an interest at
the rate of 12% per annum calculated from the date of this
Final Award until the said amount is actually and
completely paid by [Mabuhay] to [Sembcorp].17

Consequently, on April 14, 2005, Sembcorp filed a
Petition for Recognition and Enforcement of a Foreign
Arbitral Award18 before the RTC of Makati City, Branch
149.19
_______________
15 Id.
16 Id., at pp. 210-260.
17 Id., at p. 260.
18 Id., at pp. 265-270.
19 Id., at p. 71.

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Mabuhay filed an Opposition citing the following

grounds for nonenforcement under Article V of the 1958
Convention on the Recognition and Enforcement of Foreign

Arbitral Awards (New York Convention): (1) the award
deals with a conflict not falling within the terms of the
submission to arbitration; (2) the composition of the
arbitral authority was not in accordance with the
agreement of the parties; and (3) recognition or
enforcement of the award would be contrary to the public
policy of the Philippines.20
Mabuhay argued that the dispute is an intra-corporate
controversy, hence, excluded from the scope of the
arbitration clause in the Agreement. It alleged that on
March 13, 1997, Sembcorp became the controlling
stockholder of IDHI by acquiring substantial shares of
stocks through its nominee, Mr. Pablo N. Sare (Sare).
Mabuhay thus claimed that it has already been released
from the joint obligation with IDHI as Sembcorp assumed
the risk of loss when it acquired absolute ownership over
the aforesaid shares. Moreover, Mabuhay argued that the
appointment of Dr. Chantara-Opakorn was not in
accordance with the arbitral clause as he did not have the
expertise in the matter at issue, which involved application
of Philippine law. Finally, Mabuhay argued that the
imposition of twelve percent (12%) interest from the date of
the Final Award was contrary to the Philippine law and
jurisprudence.21

Ruling of the RTC

22
In a Decision dated May 23, 2008, the RTC dismissed
the petition and ruled that the Final Award could not be
enforced.
The RTC ruled that the “simple contractual payment
obligation” of Mabuhay and IDHI to Sembcorp had been re-
_______________
20 Id., at pp. 71-72.

21 Id., at pp. 70-71, 291-297.
22 Id., at pp. 85-92.

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scinded and modified by the merger or confusion of the

person of IDHI into the person of Sembcorp. As a result,
said obligation was converted into an intra-corporate

matter.23
The RTC also ruled on the issue of the lack of expertise
of the Sole Arbitrator. Thus, the dispositive portion of its
Decision reads:
WHEREFORE, premises considered, this court finds in

favor of the defendant Mabuhay Holdings Corporation,
hence it hereby DISMISSED the petition for the recognition
and enforcement of the subject Arbitral Award for the
simple reason that it was issued in violation of the
agreement. Moreover, this court cannot recognize the
Arbitral Award because it was not the work of an expert as
required under the agreement. Finally, the payment
obligation in interest of 12% per annum on the US Dollar
Amounts ($464,937.75 and $28,500) as ordered by the Sole
Arbitrator is contrary to law and existing jurisprudence,
hence void. Thus, it cannot be enforced by this Court.
Cost de oficio.
SO ORDERED.24

Aggrieved, Sembcorp appealed to the CA via a Notice of
Appeal under Rule 41 of the Rules of Court.25

Ruling of the CA

On November 19, 2013, the CA promulgated its
Decision26 reversing and setting aside the RTC’s Decision.
The CA noted that the Final Award already settled the
factual issue on whether Sembcorp acquired the adverted
shares
_______________
23 Id., at p. 89.
24 Id., at pp. 91-92.
25 Id., at p. 75.
26 Id., at pp. 68-84.

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of stock in IDHI. Thus, RTC’s contrary findings constituted

an attack on the merits of the Final Award. In sum, the CA
held that the court shall not disturb the arbitral tribunal’s
determination of facts and/or interpretation of the law. It

recognized the Final Award and remanded the case to the
RTC for proper execution.27
Undaunted, Mabuhay moved for the reconsideration of
the CA’s Decision but the same was denied in a
Resolution28 dated June 3, 2014.
Hence, this petition.

Issue

The core issue for resolution is whether the RTC
correctly refused to enforce the Final Award. Stated
differently, was Mabuhay able to establish a ground for
refusing the enforcement of the Final Award under our
applicable laws and jurisprudence on arbitration?

Our Ruling

We deny the petition.

I. Governing Laws

An assiduous analysis of the present case requires a
prefatory determination of the rules and other legal
authorities that would govern the subject arbitration
proceedings and award.
The arbitration proceedings between the parties herein
were conducted in Singapore and the resulting Final
Award was also rendered therein. As such, the Final
Award is a
_______________
27 Id., at pp. 77-82.

28 Id., at pp. 65-66.

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“foreign arbitral award” or an award made in a country

other than the Philippines.29
The Philippines is among the first signatories of the
1958 Convention on the Recognition and Enforcement of
Foreign Arbitral Awards (New York Convention) and
acceded to the same as early as 1967.30 Singapore, on the
other hand, became a Contracting State in 1986.31 The

New York Convention aims to provide common legislative
standards for the recognition of arbitration agreements and
court recognition and enforcement of foreign and non-
domestic arbitral awards. Thus, the New York Convention
primarily governs the recognition and enforcement of
foreign arbitral awards by our courts.32
In addition, as a member of the United Nations
Commission in International Trade Law (UNCITRAL), the
Philippines also adopted the UNCITRAL Model
Law33 (Model Law) as the governing law on international
commercial arbitrations. Hence, when the Congress
enacted Republic Act No. 9285 or the Alternative Dispute
Resolution Act of 200434 (ADR Act), it incorporated the
Model Law in its entirety.
_______________
29 Rule 1.11(d), A.M. No. 07-11-08-SC, entitled “Special Rules of Court

on Alternative Dispute Resolution” (October 30, 2009).
30 New York Convention was ratified by the Philippines under Senate
Resolution No. 71 on July 6, 1967; See
<http://www.newyorkconvention.org/countries> last accessed on
November 30, 2018.
31<http://www.newyorkconvention.org/countries> last accessed on
November 30, 2018.
32 Transfield Philippines, Inc. v. Luzon Hydro Corporation, 523 Phil.
374; 443 SCRA 307 (2004).
33 Adopted by the UNCITRAL on June 21, 1985 (United Nations
Document A/40/17) and recommended for enactment by the General
Assembly in Resolution No. 40/72, approved on 11 December 1985.
Subsequently amended on July 7, 2006.
34 Republic Act No. 9285, AN ACT TO INSTITUTIONALIZE THE USE OF AN
ALTERNATIVE DISPUTE RESOLUTION SYSTEM IN THE PHILIPPINES AND TO ESTABLISH
THE OFFICE FOR ALTERNATIVE DISPUTE RESOLUTION, AND FOR OTHER PURPOSES
promulgated on April 2, 2004.

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Sections 19 and 42 of the ADR Act expressly provided

for the applicability of the New York Convention and the
Model Law in our jurisdiction, viz.:
SEC. 19. Adoption of the Model Law on

International Commercial Arbitration.—International
commercial arbitration shall be governed by the Model Law

on International Commercial Arbitration (the “Model Law”)
adopted by the United Nations Commission on
International Trade Law on June 21, 1985 (United Nations
Document A/40/17) and recommended approved on
December 11, 1985, copy of which is hereto attached as
Appendix “A.”
x x x x
SEC. 42. Application of the New York Convention.
—The New York Convention shall govern the recognition
and enforcement of arbitral awards covered by the said
Convention.
The recognition and enforcement of such arbitral awards
shall be filled (sic) with regional trial court in accordance
with the rules of procedure to be promulgated by the
Supreme Court. Said procedural rules shall provide that
the party relying on the award or applying for its
enforcement shall file with the court the original or
authenticated copy of the award and the arbitration
agreement. If the award or agreement is not made in any of
the official languages, the party shall supply a duly certified
translation thereof into any of such languages.
The applicant shall establish that the country in which
foreign arbitration award was made is a party to the New
York Convention.
x x x x (Emphasis ours)

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Five years after the enactment of the ADR Act, the

Department of Justice issued the ADR Act’s Implementing
Rules and Regulations (IRR),35 and the Supreme Court
issued the Special Rules of Court on Alternative Dispute
Resolution36 (Special ADR Rules). These two rules, in
addition to the ADR Act incorporating the New York
Convention and the Model Law, are our arbitration laws.
In addition to our arbitration laws, our courts, in
recognizing or enforcing a foreign arbitral award, shall also
take into consideration the laws applied by the arbitral
tribunal. These may comprise the substantive law of the
contract and the procedural rules or the rules governing
the conduct of arbitration proceedings.
As agreed upon by the parties herein under the arbitral
clause in their Agreement, the substantive law of the
contract is the Philippine law and the procedural rules are

the ICC Rules. During the filing of the request for
Arbitration, the ICC Rules in effect was the ICC Rules of
Arbitration 1998.37 Considering that the essence of
arbitration is party autonomy, the Court shall refer to the
said Rules for purposes of examining the procedural
infirmities raised by the parties to the arbitration.

II. Jurisdiction

Mabuhay argues that the CA seriously erred in not
dismissing outright the appeal of Sembcorp as it had no
jurisdic-
_______________
35 Department Circular No. 98 or the Implementing Rules and

Regulations of the ALTERNATIVE DISPUTE RESOLUTION ACT OF 2004, December
4, 2009.
36 Special ADR Rules, A.M. No. 07-11-08-SC, September 1, 2009.
37 1998 International Chamber of Commerce, Rules of Arbitration,
available online at
<http://www.iccwbo.org/uploadedFiles/Court/Arbitration/other/rules_arb_english.pdf>
last visited on November 4, 2018.

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tion to act on the appeal. Mabuhay’s argument hinges on

Rule 19.12 of the Special ADR Rules, as follows:
Rule 19.12. Appeal to the Court of Appeals.—An

appeal to the Court of Appeals through a petition for
review under this Special Rule shall only be allowed from
the following final orders of the Regional Trial Court:
x x x x
k. Refusing recognition and/or enforcement of a foreign
arbitral award. (Emphasis supplied)
x x x x

Mabuhay thus contends that filing a petition for review
and not a notice of appeal is the proper remedy to contest
the RTC’s refusal to enforce the Final Award.
The Court notes, however, that the Special ADR Rules
took effect in 2009. Sembcorp’s notice of appeal was filed
only in 2008. The ADR Act, which was already in effect at

that time, did not specify the proper remedy of appeal from
the RTC to the CA. It merely provides that “a decision of
the regional trial court confirming, vacating, setting aside,
modifying or correcting an arbitral award may be appealed
to the CA in accordance with the rules of procedure to be
promulgated by the Supreme Court.”38
The Special ADR Rules shall retroactively apply to all
pending cases provided that no vested rights are impaired
or prejudiced.39 In this case, Sembcorp filed a notice of
appeal in
_______________
38 See Sec. 46 of RA No. 9285.

39 Special ADR Rules, Rule 24.1. Transitory Provision.—Considering
its procedural character, the Special ADR Rules shall be applicable to all
pending arbitration, mediation or other ADR forms covered by the ADR
Act, unless the parties agree otherwise. The Special ADR Rules, however,
may not prejudice or impair vested rights in accordance with law.

380

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accordance with Section 2 of Rule 4140 as it is the only

applicable rule existing at that time. Sembcorp had a
vested right to due process in relying on the said rule.
Consequently, the CA had jurisdiction to act on Sembcorp’s
appeal.
We now discuss the Court’s jurisdiction to entertain the
instant petition. The Court’s review of a CA’s Decision is
discretionary and limited to specific grounds provided
under the Special ADR Rules. Thus:
Rule 19.36. Review discretionary.—A review by the

Supreme Court is not a matter of right, but of sound judicial
discretion, which will be granted only for serious and
compelling reasons resulting in grave prejudice to
the aggrieved party. The following, while neither
controlling nor fully measuring the court’s discretion,
indicate the serious and compelling, and necessarily,
restrictive nature of the grounds that will warrant the
exercise of the Supreme Court’s discretionary powers, when
the Court of Appeals:

a. Failed to apply the applicable standard or

test for judicial review prescribed in these
Special ADR Rules in arriving at its decision
resulting in substantial prejudice to the
aggrieved party;
b. Erred in upholding a final order or decision
despite the lack of jurisdiction of the
_______________
40 Rule 41 – Appeal From The Regional Trial Courts

Section 2. Modes of appeal.—
(a) Ordinary appeal.—The appeal to the Court of Appeals in cases
decided by the Regional Trial Court in the exercise of its original
jurisdiction shall be taken by filing a notice of appeal with the court
which rendered the judgment or final order appealed from and
serving a copy thereof upon the adverse party. x x x

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court that rendered such final order or decision;

c. Failed to apply any provision, principle, policy or
rule contained in these Special ADR Rules resulting
in substantial prejudice to the aggrieved party; and
d. Committed an error so egregious and harmful to a
party as to amount to an undeniable excess of
jurisdiction.

The mere fact that the petitioner disagrees with the
Court of Appeals’ determination of questions of fact, of law
or both questions of fact and law, shall not warrant the
exercise of the Supreme Court’s discretionary power. The
error imputed to the Court of Appeals must be grounded
upon any of the above prescribed grounds for review or be
closely analogous thereto.
A mere general allegation that the Court of Appeals has
committed serious and substantial error or that it has acted
with grave abuse of discretion resulting in substantial
prejudice to the petitioner without indicating with
specificity the nature of such error or abuse of discretion
and the serious prejudice suffered by the petitioner on
account thereof, shall constitute sufficient ground for the
Supreme Court to dismiss outright the petition. (Emphasis
ours)

In relation to the applicable standard or test for judicial
review by the CA in arriving at its decision, the Special
ADR Rules further provide:
Rule 19.20. Due course.—If upon the filing of a

comment or such other pleading or documents as may be
required or allowed by the Court of Appeals or upon the
expiration of the period for the filing thereof, and on the
basis of the petition or the records, the Court of Appeals
finds prima facie that the Regional Trial Court has
committed an error that would warrant reversal or
modification of the judgment, final order,

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or resolution sought to be reviewed, it may give due course to the

petition; otherwise, it shall dismiss the same.
x x x x
Rule 19.24. Subject of appeal restricted in certain
instance.—If the decision of the Regional Trial Court
refusing to recognize and/or enforce, vacating and/or setting
aside an arbitral award is premised on a finding of fact, the
Court of Appeals may inquire only into such fact to
determine the existence or nonexistence of the
specific ground under the arbitration laws of the
Philippines relied upon by the Regional Trial Court
to refuse to recognize and/or enforce, vacate and/or set
aside an award. Any such inquiry into a question of fact
shall not be resorted to for the purpose of substituting the
court’s judgment for that of the arbitral tribunal as regards
the latter’s ruling on the merits of the controversy.
(Emphasis ours)

Here, Mabuhay did not specifically raise any of the
grounds under Rule 19.36 above in its petition before this
Court. Nonetheless, considering the dearth of
jurisprudence on enforcement of foreign arbitral awards
and the fact that the CA reversed the RTC’s decision, the
Court exercises its discretion to review the CA’s decision
solely for purposes of determining whether the CA applied
the aforecited standard of judicial review.

III. Grounds for Refusing

Enforcement or Recogni-
tion

We now delve into the core of the issue — whether there
is a ground for the RTC to refuse recognition and
enforcement of the Final Award in favor of Sembcorp.

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Our jurisdiction adopts a policy in favor of arbitration.41

The ADR Act and the Special ADR Rules both declare as a
policy that the State shall encourage and actively promote
the use of alternative dispute resolution, such as
arbitration, as an important means to achieve speedy and
impartial justice and declog court dockets.42 This pro-
arbitration policy is further evidenced by the rule on
presumption in favor of enforcement of a foreign arbitral
award under the Special ADR Rules, viz.:
Rule 13.11. Court action.—It is presumed that a

foreign arbitral award was made and released in due
course of arbitration and is subject to enforcement
by the court.
The court shall recognize and enforce a foreign arbitral
award unless a ground to refuse recognition or enforcement
of the foreign arbitral award under this rule is fully
established.
The decision of the court recognizing and enforcing a
foreign arbitral award is immediately executory.
In resolving the petition for recognition and enforcement
of a foreign arbitral award in accordance with these Special
ADR Rules, the court shall either [a] recognize and/or
enforce or [b] refuse to recognize and enforce the arbitral
award. The court shall not disturb the arbitral
tribunal’s determination of facts and/or
interpretation of law. (Emphasis ours)

Under Article V of the New York Convention, the
grounds for refusing enforcement and recognition of a
foreign arbitral award are:
_______________
41 Lanuza, Jr. v. BF Corporation, 744 Phil. 612; 737 SCRA 275 (2014).
42 See Sec. 2 of RA No. 9285 and Rule 2.1 of the Special ADR Rules.

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1. Recognition and enforcement of the award may be

refused, at the request of the party against whom it is
invoked, only if that party furnishes to the competent
authority where the recognition and enforcement is sought,
proof that:

(a) The parties to the agreement referred to in
Article II were, under the law applicable to them,
under some incapacity, or the said agreement is not
valid under the law to which the parties have
subjected it or, failing any indication thereon, under
the law of the country where the award was made; or
(b) The party against whom the award is invoked
was not given proper notice of the appointment of the
arbitrator or of the arbitration proceedings or was
otherwise unable to present his case; or
(c) The award deals with a difference not
contemplated by or not falling within the terms
of the submission to arbitration, or it contains
decisions on matters beyond the scope of the
submission to arbitration, provided, That, if the
decisions on matters submitted to arbitration can be
separated from those not so submitted, that part of
the award which contains decisions on matters
submitted to arbitration may be recognized and
enforced; or
(d) The composition of the arbitral authority
or the arbitral procedure was not in accordance
with the agreement of the parties, or, failing such
agreement, was not in accordance with the law of the
country where the arbitration took place; or
(e) The award has not yet become binding on the
parties, or has been set aside or suspended by a
competent authority of the

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country in which, or under the law of which, that

award was made.

2. Recognition and enforcement of an arbitral award may
also be refused if the competent authority in the country
where recognition and enforcement is sought finds that:

(a) The subject matter of the difference is not
capable of settlement by arbitration under the law of
that country; or
(b) The recognition or enforcement of the
award would be contrary to the public policy of
that country. (Emphasis ours)

The aforecited grounds are essentially the same grounds
enumerated under Section 3643 of the Model Law. The list
is exclusive. Thus, Section 45 of the ADR Act provides:
_______________
43 Article 36. Grounds for refusing recognition or enforcement.—

(1) Recognition or enforcement of an arbitral award, irrespective of
the country in which it was made, may be refused only:
(a) at the request of the party against whom it is invoked, if
that party furnishes to the competent court where recognition or
enforcement is sought proof that:
(i) a party to the arbitration agreement referred to in Article 7
was under some incapacity; or the said agreement is not valid
under the law to which the parties have subjected it or, failing any
indication thereon, under the law of the country where the award
was made; or
(ii) the party against whom the award is invoked was not given
proper notice of the appointment of an arbitrator or of the arbitral
proceedings or was otherwise unable to present his case; or
(iii) the award deals with a dispute not contemplated by or not
falling within the terms of the submission to arbitration, or it
contains decisions on matters

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SEC. 45. Rejection of a Foreign Arbitral Award.—

A party to a foreign arbitration proceeding may oppose an
application for recognition and enforcement of the arbitral
award in accordance with the procedural rules to be
promulgated by the Supreme Court only on those
grounds enumerated under Article V of the New York
Convention. Any other ground raised shall be
disregarded by the regional trial court. (Emphasis
ours)

In Our jurisdiction, We have incorporated the grounds
enumerated under the New York Convention in our
arbitration laws. Article 4.36, Rule 644 of the IRR and Rule
13.445 of
_______________
beyond the scope of the submission to arbitration, provided, That, if

the decisions on matters submitted to arbitration can be separated
from those not so submitted, that part of the award which contains
decisions on matters submitted to arbitration may be recognized
and enforced; or
(iv) the composition of the arbitral tribunal or the arbitral
procedure was not in accordance with the agreement of the parties
or, failing such agreement, was not in accordance with the law of
the country where the arbitration took place; or
(v) the award has not yet become binding on the parties or has
been set aside or suspended by a court of the country in which, or
under the law of which, that award was made; or if the court finds
that: (i) the subject matter of the dispute is not capable of
settlement by arbitration under the law of this State; or (ii) the
recognition or enforcement of the award would be contrary to the
public policy of this State.
44 Article 4.36. Grounds for Refusing Recognition or Enforcement.—
A. CONVENTION AWARD.
Recognition or enforcement of an arbitral award, made in a state,
which is a party to the New York Convention, may be refused,

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_______________
at the request of the party against whom it is provoked, only if the party
furnishes to the Regional Trial Court proof that:
(a) the parties to the arbitration agreement are, under the law
applicable to them, under some incapacity; or the said agreement is
not valid under the law to which the parties have subjected it or;
failing any indication thereon, under the law of the country where
the award was made; or
(b) the party against whom the award is invoked was not given
proper notice of the appointment of an arbitrator or of the arbitral
(c) the award deals with dispute not contemplated by or not
falling within the terms of the submission to arbitration, or it
contains decisions on matters beyond the scope of the submission to
arbitration; provided, That, if the decisions on matters submitted to
arbitration can be separated from those not so submitted, that part
of the award which contains decisions on matters submitted to
arbitration may be recognized and enforced; or
(d) the composition of the arbitral tribunal or the arbitral
procedure was not in accordance with the agreement of the parties
or, failing such agreement, was not in accordance with the law of
the country where the arbitration took place; or
(e) the award has not yet become binding on the parties or has
been set aside or suspended by a court of the country in which, or
under the law of which, that award was made.
Recognition and enforcement of an arbitral award may also be refused
if the Regional Trial Court where recognition and enforcement is sought
finds that:
(a) the subject matter of the dispute is not capable of settlement
by arbitration under the law of the Philippines; or
(b) the recognition or enforcement of the award would be contrary
to the public policy of the Philippines.

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_______________
A party to a foreign arbitration proceeding may oppose an application

for recognition and enforcement of the arbitral award in accordance with
the Special ADR Rules only on the grounds enumerated under paragraphs
(a) and (c) of Article 4.35 (Recognition and Enforcement). Any other
ground raised shall be disregarded by the Regional Trial Court.
45 Rule 13.4. Governing law and grounds to refuse recognition and
enforcement.—x x x
A Philippine court shall not set aside a foreign arbitral award but may
refuse it recognition and enforcement on any or all of the following
grounds:
a. The party making the application to refuse recognition and

enforcement of the award furnishes proof that:
(i) A party to the arbitration agreement was under some
incapacity; or the said agreement is not valid under the law
to which the parties have subjected it or, failing any
indication thereof, under the law of the country where the
award was made; or
(ii) The party making the application was not given proper
notice of the appointment of an arbitrator or of the arbitral
(iii) The award deals with a dispute not contemplated by or
not falling within the terms of the submission to arbitration,
or contains decisions on matters beyond the scope of the
submission to arbitration; provided, That, if the decisions on
matters submitted to arbitration can be separated from
those not so submitted, only that part of the award which
contains decisions on matters not submitted to arbitration
may be set aside; or
(iv) The composition of the arbitral tribunal or the arbitral
procedure was not in accordance with the agreement of the
parties or, failing such agreement, was not in accordance
with the law of the country where arbitration took place; or
(v) The award has not yet become binding on the parties or
has been set aside or suspended by a

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the Special ADR Rules reiterated the exact same exclusive

list of grounds.
After a careful review of the case, We find that Mabuhay
failed to establish any of the grounds for refusing
enforcement and recognition of a foreign arbitral award.
We discuss the grounds raised by Mabuhay in seriatim:

A. The arbitral authority,
composed of Dr. Chatara-
Opakorn as the sole arbi-
trator, was constituted in
accordance with the arbit-
ration agreement.

The first ground raised by Mabuhay is Article V(1)(d) of
the New York Convention, i.e., that the composition of the
arbitral authority was not in accordance with the
agreement of the parties. Mabuhay and Sembcorp

stipulated in their Agreement that the sole arbitrator must
have “expertise in the matter at issue.” Since they also
agreed that the validity and the performance of the
Agreement shall be governed by the Philippine law,
Mabuhay argues that the phrase “expertise in the matter
at issue” necessarily means expertise in the Philippine law.
Dr. Chatara-Opakorn, a Thai national, does not possess
any educational degree or training in Philippine law.
_______________
court of the country in which that award was made; or

b. The court finds that:
(i) The subject matter of the dispute is not capable of settlement
or resolution by arbitration under Philippine law; or
(ii) The recognition or enforcement of the award would be contrary
to public policy.
The court shall disregard any ground for opposing the
recognition and enforcement of a foreign arbitral award other
than those enumerated above. (Emphasis ours)

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The Agreement provides, however, that the arbitrator

with expertise in the matter at issue shall be appointed in
accordance with the ICC Rules. The ICC, thus, is the
appointing authority agreed upon by the parties. The
“appointing authority” is the person or institution named in
the arbitration agreement as the appointing authority; or
the regular arbitration institution under whose rule the
arbitration is agreed to be conducted.46 Where the parties
have agreed to submit their dispute to institutional
arbitration rules, and unless they have agreed to a
different procedure, they shall be deemed to have agreed to
procedure under such arbitration rules for the selection
and appointment of arbitrators.47
The pertinent rules in the ICC Arbitration Rules of 1998
provide:
Article 9. Appointment and Confirmation of the

Arbitrators
x x x x
3. Where the Court is to appoint a sole arbitrator or the
chairman of an Arbitral Tribunal, it shall make the
appointment upon a proposal of a National Committee of

the ICC that it considers to be appropriate. If the Court
does not accept the proposal made, or if the National
Committee fails to make the proposal requested within the
time limit fixed by the Court, the Court may repeat its
request or may request a proposal from another National
Committee that it considers to be appropriate.
x x x x
5. The sole arbitrator or the chairman of the Arbitral
Tribunal shall be of a nationality other than those of
the parties. However, in suitable circumstances and
_______________
46 See Rule 1.11(b) of the Special ADR Rules.

47 Id.

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provided that neither of the parties objects within the time

limit fixed by the Court, the sole arbitrator or the chairman
of the Arbitral Tribunal may be chosen from a country of
which any of the parties is a national. (Emphasis ours)

In accordance with the aforecited rules, Dr. Chantara-
Opakorn was appointed upon the proposal of the Thai
National Committee.
It bears stressing that the pro-arbitration policy of the
State includes its policy to respect party autonomy. Thus,
Rule 2.3 of the Special ADR Rules provides that “the
parties are free to agree on the procedure to be followed in
the conduct of arbitral proceedings.” The procedure to be
followed on the appointment of arbitrator are among the
procedural rules that may be agreed upon by the parties.
Moreover, under Rule 7.2 of the Special ADR Rules, a
challenge to the appointment of an arbitrator may be
raised in court only when the appointing authority fails or
refuses to act on the challenge within such period as may
be allowed under the applicable rule or in the absence
thereof, within thirty (30) days from receipt of the request,
that the aggrieved party may renew the challenge in court.
This is clearly not the case for Mabuhay as it was able to
challenge the appointment of Dr. Chantara-Opakorn in
accordance with Article 11 of the ICC Rules, but the ICC
Court rejected the same.48 As such, the Court shall not

entertain any challenge to the appointment of arbitrator
disguised as a ground for refusing enforcement of an
award.
At any rate, Mabuhay’s contention that the sole
arbitrator must have the expertise on Philippine law fails
to persuade. If the intent of the parties is to exclude foreign
arbitrators due to the substantive law of the contract, they
could have specified the same considering that the ICC
Rules provide for ap-
_______________
48 Rollo, p. 221.

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pointment of a sole arbitrator whose nationality is other

than those of the parties.

B. The dispute is not
an intra-corporate con-
troversy, hence, included
in the scope of disputes
submitted to arbitration.

Under Article V(1)(c) of the New York Convention, the
court may refuse enforcement of a foreign arbitral award
when the award deals with a difference not contemplated
by or not falling within the terms of the submission to
arbitration. Mabuhay argues that the dispute is an intra-
corporate controversy which is expressly excluded from the
scope of disputes submitted to arbitration under the
Agreement. In essence, Mabuhay attacks the jurisdiction of
the arbitral tribunal to hear the dispute as it did not fall
within the terms of submission to arbitration.
The CA correctly applied the Kompetenz-Kompetenz
principle expressly recognized under Rule 2.2 of the Special
ADR Rules, viz.:
The Special ADR Rules recognize the principle of

competence competence, which means that the arbitral
tribunal may initially rule on its own jurisdiction, including
any objections with respect to the existence or validity of
the arbitration agreement or any condition precedent to the

filing of a request for arbitration.

The Special ADR Rules expounded on the
implementation of the said principle:

Rule 2.4. Policy implementing competence-compe-tence

principle.—The arbitral tribunal shall be accorded the first
opportunity or competence to rule on the issue of whether or
not it has the competence or jurisdiction to

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decide a dispute submitted to it for decision, including any

objection with respect to the existence or validity of the
arbitration agreement. When a court is asked to rule upon
issue/s affecting the competence or jurisdiction of an
arbitral tribunal in a dispute brought before it, either before
or after the arbitral tribunal is constituted, the court must
exercise judicial restraint and defer to the
competence or jurisdiction of the arbitral tribunal by
allowing the arbitral tribunal the first opportunity to
rule upon such issues. (Emphasis ours)

To recall, the Agreement provides that “(a)ny dispute,
controversy or claim arising out of or relating to this
Agreement, or breach thereof, other than intra-corporate
controversies, shall be finally settled by arbitration.”
Among the issues settled in the Final Award is whether
the dispute is an intra-corporate controversy. Dr.
Chantara-Opakorn ruled in the negative. The pertinent
portion of the Final Award is reproduced as follows:
x x x Indeed, during the cross-examination of Mr. Chay,

he admitted that there was no transfer of shares from
IDHI to the Claimant [p. 130 of Transcript of
Proceedings]:
x x x x
During the reexamination of Mr. Chay by the
Respondent’s counsel, he again admitted that the transfer
of the shares from IDHI to the Claimant has not taken
effect [p. 155 of Transcript of Proceedings]:
x x x x
It is clear that the Claimant’s claim is neither premised

on allegations of mismanagement of WJNA and WJSC, nor
on who manages or controls or who has the right to manage
or control WJNA and WJSC, nor is it a claim to effect the
transfer of the share, nor an action for registration of the
shares transfer [sic] already trans-

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ferred from IDHI to the Claimant in the books of WJNA and

WJSC. The nature of the Claimant’s claim is not
intrinsically connected with the regulation of the
corporation. The Claimant’s claim in this arbitration is
straightforward: that the Respondent agreed, under a
contract, to make payment of certain amount of money to
the Claimant upon the occurrence of a specified event; that
the said event occurred but the Respondent refused to pay
such amount of money to the Claimant; that the Claimant
filed the Request in order to enforce the payment.
Accordingly, the Sole Arbitrator is of the opinion that the
dispute in this arbitration is not an intra-corporate
controversy, and, hence, it is not excluded from
arbitration under Article 19.2 of the Shareholders’
Agreement.49 (Emphasis ours)

Again, the Special ADR Rules specifically provides that
in resolving the petition for recognition and enforcement of
a foreign arbitral award, the court shall not disturb the
arbitral tribunal’s determination of facts and/or
interpretation of law.50
Yet, the RTC, in its decision dismissing the petition of
Sembcorp, declared that “it is undisputed that the shares of
stocks of IDHI in WJNA and WJSC were actually owned by
[Sembcorp] before the filing of the request for
arbitration”51 without providing any factual basis for such
conclusion which directly contradicts the arbitral tribunal’s
findings.
Even granting that the court may rule on the issue of
whether the dispute is an intra-corporate controversy,
Mabuhay’s argument is premised on the factual issue of
whether Sembcorp indeed acquired the shares of IDHI.
Mabuhay failed to establish such fact before the arbitral
tribunal. The RTC, on the other hand, concluded that
Sembcorp acquired the subject shares but failed to explain

the basis for such
_______________
49 Id., at pp. 230-231.

50 See Rule 11.9 of the Special ADR Rules.
51 Rollo, p. 88.

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conclusion. In the absence of sufficient evidence that

Sembcorp acquired the shares of IDHI, the Court finds no
cogent reason to disturb the arbitral tribunal’s ruling in
favor of the latter’s jurisdiction over the dispute.

C. Enforcement of the
award would not be
contrary to public policy
of the Philippines.

Under Article V(2)(b) of the New York Convention, a
court may refuse to enforce an award if doing so would be
contrary to the public policy of the State in which
enforcement is sought. Neither the New York Convention
nor the mirroring provisions on public policy in the Model
Law and Our arbitration laws provide a definition of
“public policy” or a standard for determining what is
contrary to public policy. Due to divergent approaches in
defining public policy in the realm of international
arbitration, public policy has become one of the most
controversial bases for refusing enforcement of foreign
arbitral awards.52
Most arbitral jurisdictions adopt a narrow and
restrictive approach in defining public policy pursuant to
the pro-enforcement policy of the New York Convention.
The public policy exception, thus, is “a safety valve to be
used in those exceptional circumstances when it would be
impossible for a legal system to recognize an award and
enforce it without abandoning the very fundaments on
which it is based.”53 An example of a narrow approach
adopted by several jurisdic-
_______________
52 See Born, Gary, International Commercial Arbitration, p. 815, 2nd

ed. (2001).
53 UNCITRAL Secretariat Guide on the Convention on the Recognition
and Enforcement of Foreign Arbitral Awards, p. 240 (New York, 1958)
2016 edition.

396

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tions54 is that the public policy defense may only be

invoked “where enforcement [of the award] would violate
the forum state’s most basic notions of morality and
justice.”55 Thus, in Hong Kong, an award obtained by fraud
was denied enforcement by the court on the ground that
fraud is contrary to Hong Kong’s “fundamental notions of
morality and justice.”56 In Singapore, also a Model Law
country, the public policy ground is entertained by courts
only in instances where upholding the award is “clearly
injurious to the public good or. . . wholly offensive to the
ordinary reasonable and fully informed member of the
public.”57
In Our jurisdiction, the Court has yet to define public
policy and what is deemed contrary to public policy in an
arbitration case. However, in an old case, the Court,
through Justice Laurel, elucidated on the term “public
policy” for purposes of declaring a contract void:
x x x At any rate, courts should not rashly extend the

rule which holds that a contract is void as against public
policy. The term “public policy” is vague and
uncertain in meaning, floating and changeable in
connotation. It may be said, however, that, in general, a
contract which is neither prohibited by law nor condemned
by judicial decision, nor contrary to public morals,
contravenes no public policy. In the absence of ex-
_______________
54 Id.
55 Parsons & Whittemore Overseas v. Société Généralé de L’Industrie
du Papier (RAKTA), Court of Appeals, Second Circuit, United States of
America, 508 F.2d 969, 974 (1974).
56 Karaha Bodas Co. v. Perusahaan Pertambangan Minyak Dan Gas
Bumi Negara [2009], 12 H.K.C.F.A.R. 84, 100 (C.F.A.); See also Hebei
Import & Export Corporation v. Polytek Engineering Company, Limited

[1999] 1 HKLRD 665.
57 PT Asuransi Jasa Indonesia (Persero) v. Dexia Bank SA [2007] I
SLR(R) 597, citing Deutsche Schachtbau-und Tiejbohrgesellschaft m.b.H.
v. Shell International Petroleum Co., Ltd., Court of Appeal, England and
Wales, 24 March 1987, [1990] 1 A.C. 295.

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press legislation or constitutional prohibition, a court, in

order to declare a contract void as against public policy,
must find that the contract as to the consideration or thing
to be done, has a tendency to injure the public, is
against the public good, or contravenes some
established interests of society, or is inconsistent
with sound policy and good morals, or tends clearly
to undermine the security of individual rights,
whether of personal liability or of private property.58
(Emphasis ours)

An older case, Ferrazzini v. Gsell,59 defined public policy
for purposes of determining whether that part of the
contract under consideration is against public policy:
By “public policy,” as defined by the courts in the United

States and England, is intended that principle of the law
which holds that no subject or citizen can lawfully do
that which has a tendency to be injurious to the
public or against the public good, which may be termed
the “policy of the law,” or “public policy in relation to the
administration of the law.” Public policy is the principle
under which freedom of contract or private dealing is
restricted by law for the good of the public. In determining
whether a contract is contrary to public policy the nature of
the subject matter determines the source from which such
question is to be solved. (Emphasis ours and citation
omitted)

In light of the foregoing and pursuant to the State’s
policy in favor of arbitration and enforcement of arbitral
awards, the Court adopts the majority and narrow
approach in determining whether enforcement of an award
is contrary to Our public policy. Mere errors in the
interpretation of the law or factual findings would not

suffice to warrant refusal of enforce-
_______________
58 Gabriel v. Monte De Piedad, 71 Phil. 497, 500 (1941).

59 34 Phil. 697, 711-712 (1916).

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ment under the public policy ground. The illegality or

immorality of the award must reach a certain threshold
such that, enforcement of the same would be against Our
State’s fundamental tenets of justice and morality, or
would blatantly be injurious to the public, or the interests
of the society.
We now discuss the pertinent claims of Mabuhay in
relation to public policy.

i. Violation of partnership law

Mabuhay contends that it entered into a joint venture,
which is akin to a particular partnership, with Sembcorp.
Applying the laws on partnership, the payment of the
Guaranteed Return to Sembcorp is a violation of Article
179960 of the Civil Code, as it shields the latter from
sharing in the losses of the partnership. Ergo, enforcement
of the Final Award would be contrary to public policy as it
upholds a void stipulation.
The restrictive approach to public policy necessarily
implies that not all violations of the law may be deemed
contrary to public policy. It is not uncommon for the courts
in Contracting States of the New York Convention to
enforce awards which does not conform to their domestic
laws.61
At any rate, Mabuhay’s contention is bereft of merit. The
joint venture between Mabuhay, IDHI, and Sembcorp was
pursued under the Joint Venture Corporations, WJSC and
WJNA. By choosing to adopt a corporate entity as the
medium to pursue the joint venture enterprise, the parties
to the joint venture are bound by corporate law principles
under which
_______________
60 Art. 1799. A stipulation which excludes one or more partners from

any share in the profits or losses is void.
61 See Oberlandesgericht Dresden, Germany, 11 Sch 06/98, 13 January
1999; and Robert E. Schreter v. Gasmac, Inc., Ontario Court, General
Division, Canada, [February 13, 1992], [1992] O.J. No. 257.

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the entity must operate.62 Among these principles is the

limited liability doctrine. The use of a joint venture
corporation allows the co-venturers to take full advantage
of the limited liability feature of the corporate vehicle
which is not present in a formal partnership
arrangement.63 In fine, Mabuhay’s application of Article
1799 is erroneous.

ii. Imposition of interest

Mabuhay argues that the twelve percent (12%) annual
interest from the date of the Final Award is also contrary
to the Philippine law and jurisprudence. To reiterate, the
only ground for refusing enforcement of a foreign arbitral
award is when enforcement of the same would be contrary
to public policy.
Mere incompatibility of a foreign arbitral award with
domestic mandatory rules on interest rates does not
amount to a breach of public policy. However, some
jurisdictions refused to recognize and enforce awards, or
the part of the award which was considered to be contrary
to public policy, where they considered that the awarded
interest was unreasonably high.64 In this case, the twelve
percent (12%) interest rate imposed under the Final Award
is not unreasonably high or unconscionable such that it
violates our fundamental notions of justice.

IV. Attorney’s Fees

Mabuhay avers that the dispositive portion of the CA’s
Decision failed to include its finding that Mabuhay is not
liable for attorney’s fees and exemplary damages. The
pertinent portion of the CA’s Decision is reproduced as
follows:
_______________
62 Villanueva, Cesar L., Non-Corporate Media of Doing Business:

Agency, Trusts, Partnerships & Joint Ventures, pp. 795-796 (2011).
63 Id., at p. 805.
64 See UNCITRAL Secretariat Guide, Article V(2)(b) or p. 246.

400

Limited
Turning now to Sembcorp’s prayer for the award of

attorney’s fees and exemplary damages, We find the same
bereft of legal and factual bases. Article 2208 of the Civil
Code allows attorney’s fees to be awarded if the claimant is
compelled to litigate with third persons or to incur expenses
to protect his interest by reason of an unjustified act or
omission of the party from whom it is sought, there must be
a showing that the losing party acted willfully or in bad
faith and practically compelled the claimant to litigate and
incur litigation expenses. Meanwhile, in order to obtain
exemplary damages under Article 2232 of the Civil Code,
the claimant must prove that the assailed actions of the
defendant are not just wrongful, but also wanton,
fraudulent, reckless, oppressive or malevolent.
Indeed, Sembcorp was compelled to file the instant
appeal. However, such fact alone is insufficient to justify an
award of attorney’s fees and exemplary damages when
there is no sufficient showing of MHC’s [Mabuhay] bad faith
in refusing to abide by the provisions of the Final Award. To
Us, MHC’s [Mabuhay] persistent acts in rejecting
Sembcorp’s claim proceed from an erroneous conviction in
the righteousness of its cause.65

We affirm the aforecited findings of the CA. However,
We find no conflict between the fallo and the ratio
decidendi of the CA’s Decision. The fallo of the CA’s
Decision includes “[n]o pronouncement as to cost.” The CA
also reversed and set aside the RTC’s Decision in its
entirety. As such, even the pronouncement of the RTC as to
costs is set aside. Accordingly, We find no merit in
Mabuhay’s prayer for a statement in the dispositive portion
expressly stating that it is not liable for attorney’s fees and
exemplary damages.
On a final note, We implore the lower courts to apply the
ADR Act and the Special ADR Rules accordingly.
Arbitration, as a mode of alternative dispute resolution, is
undeniably one of the viable solutions to the longstanding

problem of clogged
_______________
65 Rollo, pp. 82-83.

401
VOL. 888, DECEMBER 5, 2018 401

Limited
court dockets. International arbitration, as the preferred

mode of dispute resolution for foreign companies, would
also attract foreign investors to do business in the country
that would ultimately boost Our economy. In this light, We
uphold the policies of the State favoring arbitration and
enforcement of arbitral awards, and have due regard to the
said policies in the interpretation of Our arbitration laws.
WHEREFORE, the Petition is hereby DENIED. The
November 19, 2013 Decision and the June 3, 2014
Resolution of the Court of Appeals in C.A.-G.R. CV No.
92296 are AFFIRMED.
SO ORDERED.
Bersamin (CJ., Chairperson), Del Castillo, Jardeleza

and Gesmundo, JJ., concur.
Petition denied, judgment and resolution affirmed.
Notes.—The State shall encourage and actively promote

the use of Alternative Dispute Resolution (ADR) as an
important means to achieve speedy and impartial justice
and declog court dockets. (Department of Foreign Affairs
[DFA] vs. BCA International Corporation, 831 SCRA 504
[2017])
To decongest court dockets and enhance access to
justice, the Supreme Court (SC) through A.M. No. 01-10-
05-SC-PHILJA approved the institutionalization of
mediation in the Philippines through court-annexed
mediation. (Re: Anonymous Complaints Against Hon.
Dinah Evangeline B. Bandong, Former Presiding Judge,
Regional Trial Court, Branch 59, Lucena City, Quezon
Province, 842 SCRA 224 [2017])

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Mabuhay V Sembcorp

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12/5/2020 SUPREME COURT REPORTS ANNOTATED VOLUME 888

Alternative Dispute Resolution; Arbitration; Foreign Arbitral

VOL. 888, DECEMBER 5, 2018 365

rule existing at that time. Sembcorp had a vested right to due

366 SUPREME COURT REPORTS ANNOTATED

determination of facts and/or interpretation of law. Yet, the

VOL. 888, DECEMBER 5, 2018 367

fundaments on which it is based.” An example of a narrow

368 SUPREME COURT REPORTS ANNOTATED

sidered to be contrary to public policy, where they considered

PETITION for review on certiorari of the decision and

1 Penned by Associate Justice Zenaida T. Galapate-Laguilles, with

VOL. 888, DECEMBER 5, 2018 369

ting aside the Decision of the Regional Trial Court

3 Penned by Presiding Judge Cesar O. Untalan. Id., at pp. 85-92.

370 SUPREME COURT REPORTS ANNOTATED

As a result of Sembcorp’s acquisition of shares, Mabuhay

Article XIX. APPLICABLE LAW; ARBITRATION

9 Id., at pp. 20-21, 69.

VOL. 888, DECEMBER 5, 2018 371

English Language. This arbitration shall survive

372 SUPREME COURT REPORTS ANNOTATED

(5) Such further and/or other relief as the Arbitral

VOL. 888, DECEMBER 5, 2018 373

Mabuhay filed an Opposition citing the following

Convention on the Recognition and Enforcement of Foreign

20 Id., at pp. 71-72.

374 SUPREME COURT REPORTS ANNOTATED

scinded and modified by the merger or confusion of the

said obligation was converted into an intra-corporate

WHEREFORE, premises considered, this court finds in

VOL. 888, DECEMBER 5, 2018 375

of stock in IDHI. Thus, RTC’s contrary findings constituted

determination of facts and/or interpretation of the law. It

27 Id., at pp. 77-82.

376 SUPREME COURT REPORTS ANNOTATED

“foreign arbitral award” or an award made in a country

other hand, became a Contracting State in 1986.31 The

29 Rule 1.11(d), A.M. No. 07-11-08-SC, entitled “Special Rules of Court

VOL. 888, DECEMBER 5, 2018 377

Sections 19 and 42 of the ADR Act expressly provided

SEC. 19. Adoption of the Model Law on

commercial arbitration shall be governed by the Model Law

378 SUPREME COURT REPORTS ANNOTATED

Five years after the enactment of the ADR Act, the

contract is the Philippine law and the procedural rules are

35 Department Circular No. 98 or the Implementing Rules and

VOL. 888, DECEMBER 5, 2018 379

tion to act on the appeal. Mabuhay’s argument hinges on

Rule 19.12. Appeal to the Court of Appeals.—An

only in 2008. The ADR Act, which was already in effect at

38 See Sec. 46 of RA No. 9285.

380 SUPREME COURT REPORTS ANNOTATED

accordance with Section 2 of Rule 4140 as it is the only

Rule 19.36. Review discretionary.—A review by the

a. Failed to apply the applicable standard or

40 Rule 41 – Appeal From The Regional Trial Courts

VOL. 888, DECEMBER 5, 2018 381

court that rendered such final order or decision;

Rule 19.20. Due course.—If upon the filing of a

382 SUPREME COURT REPORTS ANNOTATED

or resolution sought to be reviewed, it may give due course to the

III. Grounds for Refusing